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The first in a series of talks for the second stage of “Open Skies” between the U.S. and EU ended last week in Slovenia. As discussed on the blog last week, the U.S. announced that both it and the EU should end the series of bilateral restrictions on ownership purity worldwide. While such a move may provide further investment opportunities for airlines, it failed to capture strong EU support. According to Daniel Calleja, head of the European Commission’s Aviation Directorate, “Once the United States and Europe agree on liberalising aviation, we would like other countries to share . . . but we think we should first agree with the United States and then expand this to the rest of the world.” In other words, until the U.S. and EU find some common ground on the highly contentious issues of foreign ownership and control of U.S. airlines and cabotage rights, the U.S.’s initiative is likely to sit dormant. What likelihood there is that common ground will be found remains uncertain. When asked about the prospects of the U.S. rolling back its current foreign investment restrictions, U.S. Deputy Assistant Secretary for Transportation Affairs John Byerly remarked the EU would first have to make “a very convincing case.” Apparently the fact the U.S. aviation industry is starving for investment capital isn’t enough.

To be fair, the U.S. has a number of well-placed concerns of its own. As Byerly has mentioned, it is difficult to speak of full liberalization when Italy is providing what appears to be illegal state aid to its failing national carrier Alitalia. Current EU restrictions on night flights, along with the fact that cargo carriers like UPS and FedEx are unable to carry cargo from the EU to other countries, are also on the list of U.S. concerns for the second stage.

Presumably, the Alitalia situation will be taken care of. Already the European Commission is investigating whether or not its competition laws have been breached by the issuance of state loans. Similarly, securing further rights for UPS and FedEx will likely not be a problem so long as the EU, whose firms already enjoy the right to transport cargo from the U.S. to third countries, can receive something substantial in return. In the end, the matter cycles back to foreign investment. How much is it worth to the EU and under what conditions will the U.S. budge? Certainly before negotiations are set to conclude in 2010, the red herring of national security will be thrown out multiple times in an effort to give a political basis on which to hold fast to restrictions. Great Britain, whose Heathrow Airport became central to the first stage of negotiations when the U.S. pressed for unfettered access for its airlines, has been the most vocal country thus far on the need for the EU to make greater advancements during the second stage. While EU negotiators are downplaying the possibility of Britain—or any other EU Member State—suspending rights under the first agreement should the current negotiations prove unsatisfactory, the perception that the U.S. came away from the first stage with a bigger piece of pie may be enough to compel drastic measures.

Readers interested in the EU’s vision for the second stage may want to consult Calleja’s presentation which is now archived online. While it brings to light certain hurdles which still exist, the presentation paints an optimistic picture of a shared vision between the EU and U.S. when it comes to air liberalization.

With the second stage of “Open Skies” talks between the United States and European Union beginning in Slovenia, U.S. Deputy Assistant Secretary for Transportation Affairs John Byerly made the surprising announcement that both the U.S. and EU “forgo existing rights to bar air services on the basis of nationality clauses.” This proposal would include at least sixty countries and could include all countries which currently have a bilateral air services agreement with the U.S., plus Kenya. Byerly stated that now is the time to begin “dismantling the sticky spider's web of restriction in bilateral aviation agreements.” He remained reticent, however, on the prospects of the U.S. easing its current foreign ownership and control rules for airlines.

The question which should be lurking in observers’ minds is whether this surprise announcement amounts to an honest pledge on the part of the U.S. to join in the EU’s expansive vision of air liberalization or simply a smokescreen meant to take attention off of the highly contentious ownership and control issue. The EU has repeatedly made it clear that it is seeking a truly open aviation area between itself and the U.S.. For the purposes of the “Open Skies” talks at least, the existing nationality clauses with third party countries appear ancillary at best. This is not to say that there aren’t concrete benefits to be reaped from “dismantling the spider’s web.” A removal of the existing nationality clauses could open up new investment and operating opportunities for U.S. and EU firms in Asian and African carriers. In the end, it still won’t bring the EU any closer to its stated policy goal. Should a successful agreement fail to be reached, EU Member States could begin suspending rights under the first “Open Skies” Agreement as early as 2012.

The question which should be lurking in observers’ minds is whether this surprise announcement amounts to an honest pledge on the part of the U.S. to join in the EU’s expansive vision of air liberalization or simply a smokescreen meant to take attention off of the highly contentious ownership and control issue. The EU has repeatedly made it clear that it is seeking a truly open aviation area between itself and the U.S.. For the purposes of the “Open Skies” talks at least, the existing nationality clauses with third party countries appear ancillary at best. This is not to say that there aren’t concrete benefits to be reaped from “dismantling the spider’s web.” A removal of the existing nationality clauses could open up new investment and operating opportunities for U.S. and EU firms in Asian and African carriers. In the end, it still won’t bring the EU any closer to its stated policy goal. Should a successful agreement fail to be reached, EU Member States could begin suspending rights under the first “Open Skies” Agreement as early as 2012.

On April 14, the International Aviation Law Institute's Director, Prof. Brian Havel, was part of a luncheon panel discussion entitled, "Open Skies: Will there ever be truly open transatlantic air services?" at the German Marshall Fund in Washington, D.C. A summary of the event can be found at the GMF's website.

Prof. Brian Havel's article "US/EU Open Skies Negotiations: The Second Stage Begins," from the April 2008 edition of the International Air Transport Association's eAnalyst is now online. In it you will find commentary on the issues to be discussed during the second stage of "Open Skies" talks between the U.S. and EU along with an analysis of the different policy visions both sides are bringing with them to the negotiating table.

The Indian government took two substantial steps last week towards helping their country meet the infrastructural demands accompanying their rapidly growing aviation sector. Last week, India cleared a policy where new airports may be setup within 150km of each other so long as the plan receives government approval. Prior to this shift in policy, India had forbade all airport construction which violated the 150km rule. Industry observers have argued that the old position would be unsustainable given India’s push to improve its aviation sector by expanding services and increasing its fleet size. In 2005, India spent over $13 billion at the Paris Air Show on new aircraft orders—a 164% growth in its fleet. Compared with the 2.7% growth the rest of the world experiences, it is evident that India needs to take swift steps to ensure it can readily utilize the new craft.

In addition to the relaxation of the 150km rule, India also announced that airport projects falling outside of the 150km radius would no longer need pre-approval from the Central Government but would instead only need to apply for licensing from the Directorate General of Civil Aviation (DGCA). Private airports established for non-scheduled traffic and cargo were also relieved of needless pre-approval hurdles with licensing coming from the DGCA. Both measures should encourage airport growth with the latter helping to relieve congestion at India’s public airports. There is also hope that the private airports will contribute to the improvement of air services within India as their success will depend exclusively on their ability to attract private business.

Indian aviation still faces some significant hurdles. Airport charges in India are substantially higher than those found in neighboring countries. K. Ramalingam, Chairman of the Airports Authority of India, has stated that "[t]here is a need for providing better services and reducing various charges levied by the airports to make them more profitable. Reduction in charges and better services will invite more air carriers and help in earning more money." The International Air Transport Associated has long criticized India for what it perceives to be excessive and unbalanced landing charges. According to IATA, India’s charges should be cost-based and rationally related to the services being provided. Instead, the organization has observed India overcharging for services at seven profitable airports in order to cross-subsidize its non-profitable ones. A business model similar to the one pursued in Singapore and Hong Kong where non-aeronautical revenue is used to support international airports has been suggested by IATA as a way for India to reduce its charges. IATA is also supportive of India’s Airport Economic Regulator Authority Bill which would establish a monitoring body for India’s airport charges. Currently, the bill is still sitting before the Indian Parliament awaiting approval.